Price and information disclosure in the private art market: A signalling game

In this paper, we model private art market agents’ strategic interactions in presence of two types of asymmetric information, about artwork quality and buyer’s knowledge, assuming the seller does not know how informed is the buyer while the buyer does not know the quality of the artwork before purchase. If the seller can choose either a high or a low price and the buyer can signal his type to the seller, we identify the conditions for both equilibria with pooling buyer signalling strategy and with separating strategy, as well as conditions for equilibria where the seller fixes the price according to the actual quality and where he posts prices trying to take advantage of buyer’s limited information. Finally, we identify the condition for the emergence of a “counter-lemon” result, where low-quality artworks and uninformed collectors exit the market, suggesting that seller uncertainty does not directly benefit the buyers, but it can impact the quality traded in the market.     

All equilibria of the multi-unit Vickrey auction

This paper completely characterizes the set of equilibria of the Vickrey auction for multiple identical units when buyers have non-increasing marginal valuations and there are at least three potential buyers. There are two types of equilibria: In the first class of equilibria there are positive bids below the maximum valuation. In this class, above a threshold value all bidders bid truthfully on all units. One of the bidders bids at the threshold for any unit for which his valuation is below the threshold; the other bidders bid zero in this range. In the second class of equilibria there are as many bids at or above the maximum valuation as there are units. The allocation of these bids is arbitrary across bidders. All the remaining bids equal zero. With any positive reserve price equilibrium becomes unique: Bidders bid truthfully on all units for which their valuation exceeds the reserve price.     

Search, Bargaining, Money, and Prices Under Private Information

This paper presents a model of money and search where bargaining determines prices and the quality of goods is private information. It studies how a lemons problem affects the purchasing power of money. There are multiple, Pareto-ranked equilibria. The superior equilibrium, where no lemons are produced, exists even if information about quality is relatively scarce. In other equilibria, there is price dispersion, and uninformed buyers pay higher prices than informed buyers for all goods. Taxing money balances (a proxy for inflation) makes buyers less selective, thus reducing the average quality of supply and the premium paid for known quality.     

Trade,Growth, and Increasing Returns to Infrastructure: The Role of the Sophisticated Monopolist*

Equilibrium in international trade with increasing returns in infrastructure depends on whether the infrastructure provider is “naïve” or sophisticated. A monopolist produces infrastructure under decreasing cost using fixed equipment. Unlike similar work, we derive a unique closed‐economy equilibrium. In a small open economy, with “naïve” infrastructure provider(s), multiple equilibria obtain. The industrial export potential of the economy depends on unexhausted economies of scale, and equilibria are possible where manufactures are exported despite an autarky price higher than the world price. With a sophisticated infrastructure provider, even an open economy has a unique equilibrium, which, at least as long as economies of scale are unexhausted, also involves more industrialization than the “naïve” equilibria. Access to the unlimited world market is necessary for significant industrialization but is not sufficient: one may also require “Schumpeterian” entrepreneurs, monopolists with a panoramic vision of the economy and of their catalytic role in it.     

Let the experts decide? Asymmetric information,abstention, and coordination in standing committees

We examine abstention when voters in standing committees are asymmetrically informed and there are multiple pure-strategy equilibria – swing voterʼs curse (SVC) equilibria where voters with low-quality information abstain and equilibria when all participants vote their information. When the asymmetry in information quality is large, we find that voting groups largely coordinate on the SVC equilibrium which is also Pareto optimal. However, we find that when the asymmetry in information quality is not large and the Pareto optimal equilibrium is for all to participate, significant numbers of voters with low-quality information abstain. Furthermore, we find that information asymmetry induces voters with low-quality information to coordinate on a non-equilibrium outcome. This suggests that coordination on “letting the experts” decide is a likely voting norm that sometimes validates SVC equilibrium predictions but other times does not.     

Overconfidence in the Markets for Lemons

We extend Akerlof's “Market for Lemons” (1970, Quarterly Journal of Economics 84, 488–500) by assuming that some buyers are overconfident. Buyers in our model receive a noisy signal about the quality of the good that is on display for sale. Overconfident buyers do not update according to Bayes' rule but take the noisy signal at face value. We show that the presence of overconfident buyers can stabilize the market outcome by preventing total adverse selection. However, this stabilization comes at a cost: rational buyers are crowded out of the market.     

The generic existence of rational expectations equilibrium in the higher dimensional case

The study of the generic existence of rational expectations equilibrium has concentrated on three cases, according to whether the space of “states of private information” has dimension less than, equal to, or greater than the price space. Previous results have shown that in the first case fully revealing equilibria exist generically and in the second case there are open sets of environments with no equilibrium. This paper shows that in the third case there is a residual set of environments which permits equilibria which are arbitrarily close to fully revealing.     

Dynamic bilateral bargaining under private information with a sequence of potential buyers

A seller owning a single, indivisible asset faces the random arrival of privately informed buyers, with whom he can bargain sequentially. Our key result is that despite the arrival of alternative buyers the Coase conjecture continues to hold under stationary strategies if the distribution of buyer valuations has convex support: Negotiations end almost immediately and the asset is sold almost at the minimum of the seller's own reservation value and the lowest possible valuation of a buyer. We also show existence of multiple stationary equilibria, though, in the special case where the support of buyers' valuations exhibits a sufficiently large “interior gap”. Taken together, our findings thus also point to a potential pitfall when analyzing only two-type distributions in more applied work.     

Simple Reputation Systems*

We develop a model of simple “reputation systems” that monitor and publish information about the behavior of sellers in a search market with asymmetric information. The reputations created influence the equilibrium search patterns of buyers and thus provide for market‐based “punishment” of bad behavior. We show that a reputation system that rewards honesty can enhance welfare by allowing good sellers to truthfully signal their type. However, the same system can be prone to strategic manipulation by sellers who always have low‐quality products. In that case, we show that an alternative system which assigns reputations based on product quality rather than honesty can be superior.     

The best-shot all-pay (group) auction with complete information

We analyze an all-pay group contest in which individual members’ efforts are aggregated via the best-shot technology and the prize is a public good for the winning group. The interplay of within-group free-riding and across-group competition allows for a wide variety of equilibria, according to how well groups overcome internal free-riding. In contrast with the existing literature, we derive equilibria of a symmetric model in which multiple agents per group are active. Our findings differ qualitatively from those of the individualistic all-pay auction: rents are not necessarily dissipated in equilibrium, total expected efforts vary across equilibria, and participation is expected to be greater. Moreover, equilibria with greater symmetry of behavior within a group are shown to have more “wasted” effort but also greater payoffs as overall efforts are lower. In contrast to standard economic intuition, free-riding can be beneficial for players as it reduces competition among groups. Examples of asymmetric group contests are also studied.     

Buyer groups as strategic commitments

Buyer cooperatives, buyer alliances, and horizontal mergers are often perceived as attempts to increase buyer power. In contrast to prior research emphasizing group size, I show that even small buyer groups composed of buyers with heterogeneous preferences can increase price competition among rival sellers by committing to purchase exclusively from one seller. Without transfer payments, at least one buyer group exists for each pair of sellers and buyer groups membership is chosen to achieve indifference between the two sellers. With transfer payments, and just two sellers, the grand coalition is a coalition-proof subgame perfect equilibrium (CP-SPNE), though equilibria with arbitrarily many buyer groups also exist. With three sellers (and with more sellers when the distribution of buyers is symmetric), a CP-SPNE always exists, all coalition-proof equilibria are payoff equivalent and have at least one buyer group for each pair of firms, so the grand coalition is not an equilibrium.     

Fake Sales: A Dynamic Pricing Perspective

Some sellers display high “regular” prices, but mark down these prices the vast majority of the time, advertising the good as “on sale” or “discounted”. This note suggests a framework for understanding the practice, emphasising the role of buyer uncertainty about their future valuations for the good. We argue that so‐called “regular” prices set buyers’ expectations regarding future prices, expectations that need not be tethered to the prices actually set. By manipulating upwards buyers’ expectations of future prices, the seller can increase demand for the good at the current “sale” price, increasing profits.     

On the informational size of message spaces

In a recent paper, Mount and Reiter established that, in a certain sense, the competitive mechanism is an “informationally most efficient” procedure for allocating resources. This result, of course, depends upon the way in which we characterize the notion of informational efficiency. Several alternative characterizations, and the relationships among them, are given here, and it is shown under which characterizations the above result is true, and under which it is false. It is shown that there is an intuitively appealing “best” characterization for which it is true.     

The lifeboat problem

We study an all-pay contest with multiple identical prizes (“lifeboat seats”). Prizes are partitioned into subsets of prizes (“lifeboats”). Players play a two-stage game. First, each player chooses an element of the partition (“a lifeboat”). Then each player competes for a prize in the subset chosen (“a seat”). We characterize and compare the subgame perfect equilibria in which all players employ pure strategies or all players play identical mixed strategies in the first stage. The partitioning of prizes can lead to coordination failure when players employ nondegenerate mixed strategies. In these equilibria some rents are sheltered and rent dissipation is reduced.     

HELPING BEHAVIOR IN LARGE SOCIETIES

This article investigates how helping behavior can be sustained in large societies in the presence of agents who never help. I consider a game with many players who are anonymously and randomly matched every period in pairs. Within each match, one player may provide socially optimal but individually costly help to the other player. I introduce and characterize the class of “linear equilibria” in which, unlike equilibria used in the previous literature, there is help even in the presence of behavioral players. Such equilibria are close to a tit‐for‐tat strategy and feature smooth help dynamics when the society is large.     

Why equity cannot be separated from efficiency: the welfare economics of progressive social pricing

Applied neoclassical microeconomists maintain that when profits are constrained, and average costs are higher than marginal costs, Ramsey “inverse elasticity” pricing optimizes static consumer welfare. However, when weighted, instead of unweighted, consumer surplus aggregation is used, the Ramsey pricing rule becomes a “progressive social pricing rule,” which suggests that under plausible conditions “direct-elasticity” rather than “inverse-elasticity” pricing is consumer welfare optimal.     

FOUR CHARACTERIZATIONS OF CONSTRAINED PARETO EFFICIENCY IN CONTINUUM ECONOMIES WITH WIDESPREAD EXTERNALITIES*

In continuum economies, widespread externalities are those over which each individual has negligible control. Nash-Walrasian equilibria with lump-sum transfers are defined, and their existence proved. They are then characterized by the property of “f-constrained Pareto efficiency” for finite coalitions. More general “private good” Nash-Walrasian equilibria are characterized as private-good constrained-Pareto efficient. Introducing complete Pigou taxes or subsidies leads to equilibria that are characterized by constrained efficiency and f-constrained efficiency for given levels of the widespread externalities. But full efficiency requires resolving the public-good problem of determining those aggregate externalities or, equivalently, of setting appropriate Pigou prices.     

Difference‐Form Persuasion Contests

We explore the equilibrium properties of two types of “difference‐form” persuasion contest functions derived in Skaperdas and Vaidya in which contestants spend resources to persuade an audience. We find that both types of functions generate interior pure strategy Nash equilibria unlike Baik and Che and Gale with characteristics different to existing literature. For one type of function, we find that the reaction function of each player is “flat” and nonresponsive to the level of resources devoted by the rival so that the “preemption effect” as defined by Che and Gale is absent. Further, the equilibrium is invariant to the sequencing of moves. For the second type of function, which applies when there is asymmetry among contestants with regard to the quality of evidence, we find that the reaction functions of the stronger and weaker players have gradients with opposite signs relative to Dixit and therefore their incentive to precommit expenditures in a sequential move game is also different. For both types of functions, the extent of rent dissipation is partial. From the equilibrium analysis, we are also able to establish the potential effects of some specific factors affecting persuasion such as evidence potency, the degree of truth, and bias on aggregate resource expenditures and welfare.     

Technology transfer with transboundary pollution: A signalling approach

There are increasing complaints from the developing world that developed countries seem reluctant to transfer green technology, despite its benefits in helping to solve the climate problem. Identifying a signalling effect of technology transfer that was neglected by the previous literature, this paper offers a rationale for this reluctance in a North‐South model with transboundary pollution. In a benchmark case with complete information, the North makes complete technology transfer, leading to a Pareto improvement. However, if the North's valuation on climate damage is its private information, the North does not completely transfer the technology in “almost all” of the equilibria.     

Implementation,Elimination of Weakly Dominated Strategies and Evolutionary Dynamics

This paper studies convergence and stability properties of T. Sjöström's (1994, Games Econom. Behav.6, 502–511) mechanism, under the assumption that boundedly rational players find their way to equilibrium using monotonic evolutionary dynamics and best-reply dynamics. This mechanism implements most social choice functions in economic environments using as a solution concept one round of deletion of weakly dominated strategies and one round of deletion of strictly dominated strategies. However, there are other sets of Nash equilibria, whose payoffs may be very different from those desired by the social choice function. With monotonic dynamics, all these sets of equilibria contain limit points of the evolutionary dynamics. Furthermore, even if the dynamics converge to the “right” set of equilibria (i.e., the one which contains the solution of the mechanism), it may converge to an equilibrium which is worse in welfare terms. In contrast with this result, any interior solution of the best-reply dynamics converges to the equilibrium whose outcome the planner desires. Journal of Economic Literature Classification Numbers: C72, D70, D78.